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Showing posts from September, 2008

A heated debate

A suggestion for Barack Obama's team: if John McCain doesn't show up for the debate this evening, why not get Warren Buffett onstage with Obama to explain the crisis and talk through pragmatic solutions for it? I'm sure he can take the evening off from sorting out Goldman Sachs.

Virtually nobody is trusted more by the public on these matters than Buffett, and he's already endorsed and advised Obama during the campaign. It might be pretty good for Obama's image as a safe pair of hands.

Credit crisis latest

From the FT today:

"Towards the end of the week several rivals said they had dropped internal restrictions on approaching Morgan Stanley clients when it became clear how much potential custom was available."

Why on earth do investment banks have "internal restrictions" on approaching each other's clients? I appreciate that they would end up spending lots of time chasing new leads and winning new clients only to lose existing business to the other banks who start poaching their clients. They would probably end up reducing fees and increasing sales budgets without expanding the market much, just pinching share from each other. Maybe not an ideal result for the banks.

But in any other industry that's called a cartel. Why should investment banks be exempt from competition law?

If the public is taking the opportunity to get some reforms in return for its $700bn, this could be one to throw in.

p.s. As usual, Martin Wolf's take on the issue is pretty sound.

New ways of managing risk

We need certainty about the future in order to do anything. It’s a basic requirement of the action-feedback cycle that intelligent beings use to achieve their goals.On the simplest level, if I want to pick up an apple to eat, I need to know that when I tense my arm muscles, my hand will move in such a way, and when I grip it and pick it up, it will weigh (more or less) how much I expect, so that I need to apply just this much pressure to bring it to my mouth. I need to know that it will be this hard to bite and that it will give me some energy and assuage my hunger. If I am missing any of this information it’s highly unlikely I’ll be able, or even want to try, to pick up and eat the apple.In a more sophisticated decision I need the same predictability. I have to know that when I hire this person, they’ll show up at work, and when I sign this contract, the customer will pay the money on time, and when I build this car, someone will buy it. If we have certainty, it lets us see clearly h…

The new new new economy

If the leveraged financial structures supporting the operations of the world economy are unravelling, what will happen?

In the short term, it's dangerous. Today, according to the FT, banks are refusing to lend to each other. Soon that will start to have knock-on effects for exporters, and soon after that for domestic business too. They can't borrow money because their banks' risk models require the loan to be laid off to other parties who will no longer play. So companies won't be able to get export finance, and won't be able to take on domestic projects that require financing either.

Why is that? If the money is out there but the banks won't lend to each other, people who need it are going to have to start finding new financial suppliers. Let's say that bank A has a strength in lending foreign exchange to manufacturers, and usually finances this by swaps with banks B and C in the forex markets. The money is spent by the manufacturers and comes back into the …

Client value management, customer value management and what is value?

I have been researching the concept of client value management (also known as customer value management). The idea has been around for a while, and is mentioned by lots of people as an evolution of CRM (customer relationship management). A number of marketing experts and consultancies discuss it as a business process but surprisingly it does not seem to be an established software category and few of the approaches have been implemented in software.

Everyone has their own version of what CVM means. Some of the main distinct approaches are:
maximising the value of a client over the lifetime of your relationship with them (this report by BusinessObjects, and some research it cites from Bain and Company). This is approached by analysing value during acquisition, relationship management and retention.
understanding customer value added and targeting your marketing and customer service improvements to where they achieve maximum benefit (a consultancy called CVM from New Zealand)
finding out wha…

Structured pricing in the property market

Pricing, fundamentally, is a way of transferring a fair share of value from buyer to seller in return for the service the buyer receives.
However, it is sometimes challenging to measure the value that each party obtains in a transaction. Also, economic theory contains a concept called asymmetric information which means that either the buyer or seller has information that the other does not. This is often as simple as “how much do I really want this” but it may be that one party actually knows something concrete that the other doesn’t, and can take advantage.

For these reasons, in the early stages of development of a market, simplified pricing models arise. These act as proxies for the real value of the transaction – making it easier for people to negotiate. In the property sector, the typical proxies are fees based on a percentage of sale or rental price. In professional services, the typical proxy is a fee per hour which may vary according to the experience of the individual being empl…